Should you “combine” your pension pots? For millions of people, managing their pensions can feel overwhelming. The average person is estimated to have 10-12 jobs across their working lifetime. Each job can bring its own pension “pot”, potentially leaving you with juggling a dozen (or more) income sources in retirement!
At Castlegate, our financial planners help clients in Grantham, Lincoln and further afield gain clarity about their best options for simplifying (and optimising) their pension landscapes. Below, we offer a short guide to pension consolidation in 2025: how it works, whether you can do it, and the potential impact on your retirement plan.
Pension consolidation involves transferring funds from two (or more) pensions into a single scheme, such as a personal pension. The reasons for doing this include: simplifying pension management, lowering fees and widening access to more investment options.
The process usually involves combining pension “pots” (DC - defined contribution pensions), but sometimes a final salary (or DB - defined benefit) pension is transferred into the combined pot as well. This is not typically recommended, however, as DB pensions are widely seen as “gold-plated” - making their benefits very difficult to replicate or recover once lost.
It is possible to consolidate your pensions if you have more than one scheme (e.g. from previous jobs). These schemes must allow you to transfer out. For instance, some might block you if you have protected benefits or if they detect regulatory “red flags” under The Pension Schemes Act 2021. Moreover, a final salary (or defined benefit) scheme worth at least £30,000 cannot be transferred unless you first consult an FCA-regulated financial adviser.
Just because you can consolidate some (or all) of your pensions does not mean that you should. For many people, consolidation can offer more simplicity, lower fees and better investment control. However, a transfer could result in losing valuable benefits that are difficult (or even impossible) to replace - e.g. guaranteed annuity rates from older pensions.
Combining pensions varies in timescales. Consolidation could take as little as 2 weeks, but in some cases it could take months. If the process involves two “new” pension pots (DC pensions), then consolidation is likely to be fast. However, if an older scheme is involved - perhaps one with safeguarded benefits - then the process could be dragged out. A financial adviser can be very helpful here, fighting in your corner to speed things up.
It can be mentally exhausting trying to manage multiple pension schemes. By consolidating two (or more) of them, you have fewer providers, statements and logins to deal with. If appropriate, having everything in one pot can make everything much easier to monitor and control. This can amplify your ability to forecast income, monitor growth and plan withdrawals.
For many clients, their existing pension pot(s) offer limited investment choices - perhaps only including funds from one specific provider. By opening a private pension (e.g. a Self-Invested Personal Pension, or SIPP), the investor can grant themselves options from a far wider market - some of which might offer better performance prospects and/or lower management fees.
However, consolidation is not always possible or appropriate. Certain schemes might offer very attractive benefits that you would lose by transferring - e.g. guaranteed annuity rates, enhanced tax-free cash or a protected retirement age.
You also need to watch out for exit fees and other penalties. Some schemes can impose heavy charges for leaving them. If these outweigh the potential gains from the transfer, it may be better to remain with that provider (even if begrudgingly).
Also, consider your employer contributions. If you are employed, your boss should be making regular contributions to your workplace pension under the UK’s auto-enrolment rules - i.e. at least 3% of your salary (2025-26). If you halt participation in that scheme, your employer is not obliged to move their contributions to your new, consolidated private pension.
Timing is also a factor. Transferring often involves selling investments in one scheme and then reinvesting in another one. Unless this process is carefully managed (preferably with the help of a financial adviser), this can leave you vulnerable to market timing risk.
Overall, pension consolidation can be a great option for maximising efficiency, cost savings and diversification in retirement. However, there are crucial risks to consider.
If you’d like to make sure you’re taking the right steps to diversify your portfolio and safeguard your financial future, please get in touch.
Your capital is at risk. Investments can go down as well as up, and you may not get back the amount you originally invested. Past performance is not indicative of future results. Diversification does not guarantee profits or fully protect against losses. Tax treatment depends on individual circumstances and may change in the future. This content is for information only and does not constitute personal financial advice. Readers should seek independent financial advice before making any investment decisions.
Castlegate Financial Management Limited is registered in England No. 2077374. Registered Office: 8 Castlegate, Grantham, Lincolnshire. NG31 6SE. Authorised and Regulated by the Financial Conduct Authority. FCA No. 169777.
